Gridlock threatens FTC’s history of bipartisanship

By Mike Swift and Leah Nylen. Originally published on FTC:Watch on April 21, 2017.

An unusual situation has left the Federal Trade Commission with only two sitting members, one Republican and one Democrat — a circumstance that has already sidetracked the settlement of one piece of FTC litigation. The split could strait-jacket the agency — which prides itself on its frequent bipartisanship — in other important cases as well, such as the pending Walgreens-Rite Aid merger.

The problem is theoretically temporary. President Donald Trump is expected to name candidates for the three vacant seats in the coming months. But for the foreseeable future, unless Democrat Terrell McSweeny agrees with Republican acting Chairman Maureen Ohlhausen on an enforcement action, policy question or litigation settlement, the FTC may be powerless to act.

Both sitting members hold a de facto veto, creating the rare circumstance in Washington where a Democrat has actually accumulated power as the result of recent political developments.

The dynamics of the 1-1 situation are so awkward that if Ohlhausen and McSweeny were to meet in the elevator in FTC headquarters at 600 Pennsylvania Avenue, they can't talk about FTC matters. Federal transparency laws require the pair give public notice before discussing agency business. In the meantime Ohlhausen and McSweeny can only speak through intermediaries like a complicated version of the game of telephone.

"It's really hard to reach consensus with people when you can't talk to them," McSweeny said at an event last year.

DirecTV impasse

The situation is already causing headaches for the FTC in its litigation against DirecTV — problems that could potentially spill over to other companies caught up in an enforcement action or lawsuit.

During a court hearing this month in Oakland, California, the federal judge presiding over the DirecTV case wanted answers about when the Ohlhausen-McSweeny standoff might end.

McSweeny on April 5 took the highly unusual step of writing directly to US District Judge Haywood Gilliam, telling him that she would not vote for the proposed settlement because the money DirecTV proposed to pay to settle allegations of deceptive advertising was inadequate. McSweeny added that she had "serious reservations about the terms of injunctive relief" offered by DirecTV. Terms of the proposed settlement haven't been made public.

David Shonka, the FTC's acting general counsel, was thrust into the uncomfortable position of having to explain to Gilliam at a conference later that same day that no end is in sight for the 1-1 impasse.

"The fact is, the White House has not made any nominations regarding the three vacancies, and the Senate would have to confirm" anyone nominated to the FTC, Shonka told the judge.

Even after those two new Republican and one Democratic members are appointed, potential conflicts of interest could require the recusal of commissioners in cases like DirecTV's, a situation that would potentially extend the impasse, Shonka warned the judge.

DirecTV's lawyer, Jeffrey Tillotson, wasn't particularly happy with the situation. Nor was he happy with Gilliam's decision, because of the open-ended nature of the stalemate, to set the date for an August trial if the two sides are unable to agree to a settlement before then.

"I think as the court has heard," Tillotson said, referring to the settlement approval process, "it's unclear how long that process may take."

McSweeny has declined to comment on the DirecTV situation. When asked about the DirecTV impasse a few days later, Ohlhausen declined to speculate about whether she and McSweeny would be able to come to a consensus.

The acting chairman noted, however, that the staff of the FTC's Bureau of Consumer Protection supported the proposed settlement. "The staff has the best interests of consumers and the agency at heart, and I tend to follow their advice," Ohlhausen said.

Asked about McSweeny's letter to Judge Gilliam, Ohlhausen said: "In my five years [on the FTC], I have never filed such a letter."

Other splits

Bipartisanship hasn't vanished at the FTC. Ohlhausen and McSweeny continue to cast 2-0 votes in most cases, and often see things the same way on merger reviews.

A large question mark remains on Walgreens Boots Alliance's $17.2 billion purchase of rival pharmacy chain Rite Aid. The pair has agreed to sell up to 1,200 stores to Tennessee-based chain Fred's to resolve the FTC's concerns about the deal. The FTC is particularly anxious after a string of unsuccessful remedies in three recent mergers involving car-rental companies, supermarkets and discount chains. The pharmacies will need to persuade both Ohlhausen, who is generally pro-merger, and McSweeny, who is generally more skeptical, that the remedy offered by Fred's is sufficient.

At the same time, DirecTV may not be the only company left in limbo because of the partisan paralysis of an agency that has long boasted of its bipartisan culture.

In the days between Jan. 1 and the Feb. 10 resignation of Democratic commissioner Edith Ramirez, the two Democrats voted 2-1 against a dissenting Ohlhausen to file antitrust litigation against Qualcomm; data-security litigation against wireless router-maker D-Link; and to allow pre-paid debit card company Netspend to pay $53 million to settle allegations that its advertising deceived consumers.

Without Ramirez's vote in those matters, Ohlhausen and McSweeny would have been stuck in a 1-1 impasse.

For now, the Qualcomm and D-Link cases are moving forward, and the Netspend case has been finalized. But Ohlhausen's strongly worded dissent in the Qualcomm case, filed after she came up on the short-end of a 2-1 vote against Ramirez and McSweeny, has already been used by Qualcomm to fortify its defenses.

"I face an extraordinary situation: an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support," Ohlhausen wrote.

That rhetoric won't make it any easier for the FTC's staff attorneys to pursue the claims that Qualcomm's patent licensing business violated the Sherman Act because the company reneged on promises to license its standard-essential patents at fair, reasonable and non-discriminatory rates.

Ohlhausen also said she wants to explore withdrawing the FTC's case against Qualcomm once more commissioners join the agency.

In the D-Link case, Ohlhausen didn't file a written dissent. But she was again on the short end of another 2-1 vote against the two Democrats. The case is significant for the development of data security law because it marks the first time that the FTC has brought data security litigation against a company whose products haven't yet suffered a data breach.

The FTC claimed D-Link had put consumers at risk because the allegedly lax security in its products put consumers at risk of a breach. For example, the company is accused of failing to use free software to secure users' mobile app login credentials, instead storing them in readable text on users' mobile devices.

US District Judge James Donato hasn't yet ruled on D-Link's motion to dismiss the FTC's claims. But Ohlhausen has made public comments critical of the FTC's decision to sue when there had been, she said, no concrete harm to consumers.

Ohlhausen also took issue with the Netspend settlement.

"When, as in this case, the FTC misses the mark in its deceptive advertising enforcement and instead prohibits or limits truthful claims, we harm consumers and competition," she said in a statement filed with the settlement approved by Ramirez and McSweeny.

A federal judge approved the $53 million NetSpend settlement on April 10.

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